Do We Really Have to Pay for All This?

There are legitimate debates about public policy issues. Those discussions do not have to be turned into demonizing the other side as Al Gore stylized regarding Global Warming and Paul Krugman now personifies regarding our massive deficit and debt. We had one of those discussions the other night which we all should explore.

The debate we had was regarding the financial crisis facing the City of Los Angeles due to retirees’ health and pension benefits. This crisis is not exclusive to Los Angeles. Most municipal and state governments face similar challenges. In addition, it is agreed that the largest budget challenges facing our federal government centers on the Social Security, Medicare and Medicaid programs.

All parties agreed that unless the programs were revamped they would bring Los Angeles to its financial knees. There was no discord on the issue. Where the difference was focused was on whether the benefits should be revised for all employees or just new hires. Los Angeles is a perfect example of what has been done. The elected officials restructured these benefit programs for future employees and left the existing employees’ benefits alone. Interestingly even this change has become controversial as union leaders are fighting that change and the issue has become prominent in the mayoralty election.

The argument was made in support of changing the benefits for future employees only. It is fairly simple and straight forward. There are agreements in place and those agreements need to be honored. That is a fair and reasonable argument. It is maintained by many fine-thinking people. We just consider it wrong.

The argument for restructuring current employees’ retirement programs is multi-faceted and more nuanced. Yet they are just as substantial. Here are a few of the points:

1. Making changes for future employees exempts many employees who are in the 20’s for example. Assuming those employees work for the government until they retire (after 20 to 30 years of work) we will be supporting most of these people for the next sixty years. Thus, the government will be in financial crisis until they are off the rolls. Changing future employees’ benefits does nothing to solve the financial crisis for at least the next generation.

2. Why should taxpayers be obligated for bad deals that elected officials created? A lot of these elected officials are in the pocket of union leaders when they get elected, and that is why the outsized benefits were handed out in the first place. For example, the health care benefits that were handed out to employees of the now bankrupt City of Stockton. After one month of employment a municipal employee received health care benefits for life for themselves and their dependents. One can only wonder why anyone would put that kind of plan in place, plus why should the good people of Stockton bear the brunt of this stupid decision?

3. Some decisions that were made were not corrupted -- they were bad. For example, when Social Security was started the average life span was below the retirement age of 65 years. There was no anticipation that in eighty years, the ratio of people paying into the program to the beneficiaries would shrink from over 159 to the current three to one. The ratio is anticipated to shrink further with increased life expectancy's. There was no anticipation life span would increase 15 years in just 80 years. These programs cannot move forward in their present form.

4. When private companies make unsustainable decisions that bring them to their financial knees, they have a mechanism to extricate themselves from their problems – bankruptcy. Why can’t governments that do not have the revenue streams to meet their obligations restructure their commitments to make them sustainable?

5. If elected officials make stupid commitments, it is clear who will get stuck with the bill – we do. The question becomes is it fair for the average worker in the private sector to have to work for three, five, or ten extra years to pay for the retirement of their public employees who are getting much richer benefit packages?

There are definitely two sides to this argument. There are reasonable people who take the either side on this important public policy debate. The important thing is we need a hearty debate on the issue and to make the right decisions before all of our governments go bankrupt. Where do you stand?